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Amazon Profitability Focus Implications

Amazon’s return to a profitability-focused retail operation is no accident. In fact, it was predictable. So let’s take a look at what brought us here and the implications for annual vendor negotiations (AVNs):
Amazon’s early days were marked by a core expansion focus. The more products brands brought onto the marketplace, the better. This expansion focus started to shift towards a focus on profits in 2019:
For the first time, Amazon enforced large-scale product de-listings across categories. Affected items either got moved to other fulfilment methods (dropship, DI, …) or sold in different pack sizes.
With the start of the pandemic, Amazon quickly refocused on removing these buying constraints. Products sold in case packs got offered as single packs. Channels with minimum order quantities (Pantry and Prime Now) got migrated into Amazon Core.
The focus once again shifted in 2021 towards availability. With supply chains under pressure and suppliers struggling to get products into NA/EU markets, Amazon prioritises availability over profits.
It’s no surprise that the recent availability focus could not prevail. Instead, we are reading news about layoffs, hiring freezes, and the return of item de-listings.
So what are the implications for 1P vendors?
·Expect Amazon to maintain its profitability focus in 2023. With the Amazon stock price having declined -50% over the past 12 months, Andy Jassy’s current profitability focus will not go away anytime soon.
·Assess your bottom line. Don’t focus on cost prices and trade terms. Instead, also understand your below-the-line investments (i.e., chargebacks, shortages, advertising investments…). ·Understand where you can drive mutual value in your supplier relationship with Amazon. Revisit supply chain efficiency programmes that can reduce costs for you as a supplier and Amazon.
·Plan for more challenging negotiations than in previous years. Make sure you clearly quantify your best and worst-case scenarios and define your ZOPA (Zone Of Possible Agreement). Vendor managers are motivated to reach their targets in light of the ongoing round of layoffs.
(KamCity 17/01/23)

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